Since the 1990s, the tort of “public nuisance” has emerged as a new weapon of states and municipalities looking to spread the economic cost of large-scale societal ills.1 To date, it has been used in attempts to impose liability on asbestos manufacturers for asbestos-related illnesses, poultry farmers for water pollution, former lead pigment and paint manufacturers for childhood lead poisoning, and firearm manufacturers for contributing to the black-market for handguns. The newest wave of public nuisance suits seek to address global warming by holding auto manufacturers, electricity producers and others liable for the effects of greenhouse gas emissions, and secondary market investors for the subprime mortgage crisis. As these descriptions reflect, the damages sought by the plaintiffs are virtually boundless.
A company’s insurance portfolio can be an important asset both for covering its defense costs and for indemnifying it from judgments or settlements arising out of this wave of public nuisance suits. Notwithstanding the obvious benefits of funding a vigorous defense and presenting a united front, some insurers have essentially drawn a line in the sand, contending that their policies do not cover public nuisance claims. Coverage litigation over public nuisance suits may join the ranks of asbestos and environmental cases as the new high-stakes battleground in insurance coverage litigation.
This article provides a brief overview of general liability coverage and then discusses some of the principal arguments insurance companies have raised and likely will raise in the future to try to deflect liability for public nuisance lawsuits.
Coverage for Public Nuisance Cases Under CGL Policies
Coverage for Public Nuisance Cases Under CGL Policies
Comprehensive and commercial general liability (CGL) insurance policies2 are the “cornerstone” of liability protection for the vast majority of U.S. businesses.3 These policies are a substantial asset and may be the first line of defense for companies facing existing or potential public nuisance claims. CGL policies contain a broad grant of coverage. Generally, insurers are obligated:
[To] pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of “bodily injury” or “property damage” to which this insurance applies, caused by an “occurrence” . . . .4
Typically, CGL policies also require the insurer to defend the policyholder whenever the allegations in the underlying complaint permit proof of claims which, if proven, would fall within the scope of coverage.7 The insurer must defend the suit even if the allegations are groundless, false or fraudulent.8 Defense coverage is a valuable part of CGL coverage. Indeed, defense costs in high-value claims can comprise 30% to 40% of the amount the insurers are ultimately required to pay. In public nuisance cases, where the costs of defending the suit may be enormous, coverage for defense costs can be almost as important as coverage for any ultimate liabilities.
Given the broad coverage grant in CGL policies and favorable principles of interpretation, CGL policies should provide defense and indemnity coverage for public nuisance suits. However, insurers have raised a number of defenses in past cases involving coverage for public nuisance suits. Three of the principal defenses insurers have raised in the past, and likely will raise in the future, to avoid coverage public nuisance claims are discussed below.
As noted above, standard CGL policies require insurers to pay “all sums which the insured shall become legally obligated to pay as damages . . . .” Most public nuisance complaints allege past and present harm caused by the nuisance and seek abatement of the nuisance.9 In the past, insurers have argued that the term “damages” in CGL policies is limited to “legal” monetary damages awarded to compensate for past harm, while abatement is an equitable remedy intended to prevent future harm, and for which no coverage exists.
Although insurers faced with coverage claims for public nuisance suits likely will raise this defense, past attempts to deny coverage based on a distinction between legal and equitable relief largely have been rejected by the courts.10 This is because with either type of relief, the policyholder is required to pay sums of money because its acts or omissions are found to have caused harm to third-parties. An abatement claim may be characterized as “equitable relief”, but the costs of abatement are essentially compensatory damages for the injury caused by the policyholder. Most courts therefore view the insurers’ distinction, when it comes to the reasonable expectations of the policyholder, as a false one.
The weight of authority supports the policyholder position on this issue. In the environmental context, for example, courts generally have rejected attempts to draw a distinction between legal and equitable relief, recognizing instead that costs of abatement, although equitable, constitute “damages” under CGL policies.11 As one court explained, policyholders should be able to rely on “the common sense expectation” that the term “damages” will cover all claims that require them to pay money, regardless whether the claim is styled as equitable or legal.12
This same reasoning has already been adopted in at least one coverage case arising out of the public nuisance gun litigation. In Amerisure Insurance Co. v. AcuSport Corp., the NAACP and the National Spinal Cord Injury Association (“NSCIA”) filed suit against AcuSport and numerous other handgun manufacturers and distributors, alleging that the defendants negligently distributed the handguns in a manner that facilitated the supply of handguns to an illegal underground market.13 The plaintiffs claimed the defendants’ actions created a public nuisance, and they sought as a remedy that the defendants be ordered to abate the nuisance by contributing “at least $20 million for the creation of an ‘industry-wide safe sales monitoring and distribution regulatory agency,’ for the ‘establishment of education programs designed to prevent gun acquisition and resultant violence among young people,’ and for whatever further steps might be necessary to abate the nuisance.”14
When AcuSport sought coverage from Amerisure Insurance Co., its insurer, Amerisure denied coverage. One of the arguments Amerisure asserted was that the abatement relief sought by the plaintiffs did not constitute “damages” under the policy. According to Amerisure, the term should be construed narrowly, “restricting it to its technical, legalistic meaning, i.e., amounts paid as compensation for past injuries inflicted.”15 Because the underlying suit did not seek “damages” in the traditional sense, Amerisure argued there was no coverage.16
The U.S. District Court for the Southern District of Ohio ultimately rejected Amerisure’s argument. The court noted that Ohio courts had not addressed whether the term “damages” encompasses the type of equitable relief sought by the plaintiffs in the case.17 However, in the environmental context, the Ohio courts have held that the term “damages” should be interpreted to give effect to the “‘common sense expectation’ that if [the insured] is made to pay sums of money because its acts or omissions adversely affected the rights of third parties, its insurance policy would cover that loss”.18 The court reasoned that the Ohio courts potentially would apply the same standard and reasoning to the abatement remedies at issue in the AcuSport suit, and therefore, the court concluded the insurer had a duty to defend AcuSport for the nuisance claims against it.19
A similar argument based on the term “damages” also was rejected in another suit involving coverage for public nuisance claims. In NL Industries., Inc. v. Commercial Union Insurance Co., NL Industries (“NL”), a former manufacturer of lead pigment and paint, sought coverage in connection with a number of public nuisance suits that sought to require it to pay for an abatement program to remove lead paint from various buildings.20 NL’s primary insurer denied coverage, arguing, among other defenses, that the abatement remedies sought in the underlying suits were not covered “damages”. According to the insurer, the abatement expenses were essentially “remedial costs” that did not fall within the scope of coverage.21
The court rejected the insurer’s argument, finding that the term clearly encompassed the costs to restore property to its former condition or to compensate for any reduction in value.22 The court likened the lead paint at issue in that case to graffiti, noting that “both reduce the value of the property by their mere existence and require an expenditure to be removed. Just as graffiti undoubtedly qualifies as property damage, so must the lead paint damage at issue here.”23 The court found that this interpretation was consistent with the plain meaning of the term and the reasonable expectation and purpose of the ordinary businessman.24
Although there is some limited contrary authority,25 the majority of courts to consider the issue have rejected insurers’ attempts to create an artificial distinction between “legal” and “equitable” (or “remedial”) relief. Instead, these courts have focused on the plain and ordinary meaning of the term -- rather than a technical, legalistic interpretation -- and concluded that the term “damages” includes claims for abatement. Insurers are likely to continue to raise this defense, but given these cases, future attempts to avoid coverage on this basis are unlikely to succeed.
Another defense insurers may assert is “trigger of coverage”. The term “trigger” generally refers to what must happen during the policy period to implicate coverage under that policy. In most CGL policies, it is the injury or damage allegedly caused by the policyholder that triggers coverage.
When dealing with liabilities that potentially span many years, trigger determines which policy periods, and therefore which policies, are required to provide coverage for the claim. “Trigger of coverage” determinations can have a potentially significant impact on the amount of coverage available to pay liabilities for public nuisance claims. If the alleged injuries or damages are deemed to occur only in one year, then the insurance available will be limited to what is available in that single year. If, however, the alleged injuries or damages occur in multiple years, the policies in effect in all of those years can be triggered.
Most of the products-based public nuisance lawsuits seek recovery for bodily injury or property damage that spans decades, and to date, complaints asserting public nuisance claims generally have alleged “continuous injury” arising from the nuisance, meaning the injuries are deemed to occur continuously from the time the nuisance began until the nuisance is abated. For example, lawsuits against former lead paint and pigment manufacturers are based on the alleged damage caused by the presence of lead paint in residential buildings. That paint was, in most cases, applied decades ago and has been continuously present in those buildings since. Because the alleged damage in these lawsuits is the presence of lead paint, those damages occurred in every year in which the lead paint was present in the building, and thus, all applicable policy periods from the time the nuisance began until the present should be triggered.
Insurers, however, may try to limit the coverage available for such nuisance claims by arguing that, to the extent coverage is triggered at all, the trigger or injury is not “continuous” in nature. For example, in the lead paint context, insurers may argue that the alleged property damage occurred at the point of application of the lead paint to the building, rather than from the time of application until abatement, as the states alleged. Or, the insurers may argue that the alleged property damage occurs only when lead paint is allowed to deteriorate. In either case, the effect would be to improperly cabin coverage in a limited number of years, thereby decreasing the amount of coverage available to the policyholder.
A number of cases addressing similar defenses by insurers in prior asbestos coverage cases support the “continuous trigger” approach in public nuisance cases. In those asbestos cases, courts held that alleged property damage resulting from the presence of asbestos in buildings constituted a “continuous injury” triggering all policies in effect from the time the asbestos was installed until it was abated.26 Applied to the public nuisance context, those cases support a finding that all policies from the time the public nuisance began until the time of abatement would be triggered, thereby maximizing coverage.
Another defense insurers have asserted and likely will continue to assert in public nuisance cases is based on the “expected or intended” limitation found in most CGL policies. That limitation restricts coverage to “bodily injury or property damage neither expected nor intended from the standpoint of the insured”.27 The purpose of this limiting language is to preclude coverage for a policyholder’s intentional harm to others. 28
In the public nuisance context, insurers have argued that coverage is barred if the policyholders intended the acts giving rise to the public nuisance (e.g., intending to sell lead paint or to emit greenhouse gases) or if they intentionally acted in disregard of a known danger (e.g., disregarding that the lead paint could harm children, that the greenhouse gases could contribute to global warming, or that irresponsible lending practices could result in massive home foreclosures). For example, in The Glidden Co. v. Lumbermens Mutual Casualty Co., certain insurers argued that their policyholders were not entitled to coverage for lead pigment-related public nuisance suits, because the underlying suits asserted intentional tort claims against the policyholders, which the insurers argued were excluded by the “expected or intended” limitation.29 The court rejected this argument, holding instead that coverage is barred only if the resulting bodily injury or property damage was intended by the policyholder.30 Although the complaint in that case asserted intentional tort claims, because it did not allege that the policyholders “actually intended injury to any one or property exposed to lead paint,” the court concluded that the “expected or intended” limitation did not apply.31
The rule followed in Glidden is part of a long line of cases rejecting the position that the “expected or intended” limitation in insurance policies should be determined by looking at whether the policyholder expected or intended the acts that give rise to liability. Instead, courts have held that the relevant inquiry is whether the policyholder expected or intended the injury or damage for which the policyholder seeks coverage.32 This interpretation is consistent with the language of the policy, which, as noted above, limits coverage to claims for “bodily injury or property damage neither expected nor intended from the standpoint of the insured”. Thus, it is the “bodily injury” or “property damage,” not the act giving rise to the injury or damage, that must be unexpected and unintended. In addition, it is consistent with the policyholders’ reasonable expectations. As one court explained, “the baseball intentionally thrown which accidentally breaks the neighbor’s window, the intentional lane change which forces another driver into the ditch,  the intentionally started trash fire which spreads to the adjacent lot,” and “countless other examples” of situations where policyholders would expect coverage to apply would not be insured if the “expected or intended” limitation were construed broadly to preclude coverage for intentional acts.33
For example, in Johnstown v. Bankers Standard Insurance Co., the City of Johnstown, New York was sued by the State of New York for CERCLA violations and for public nuisance and restitution to recover the costs of studying and cleaning up wastes that were seeping from the City’s landfill into surrounding groundwater.34 The City’s insurers asserted that they did not owe the City coverage for the claims, because, among other defenses, the City’s losses were “expected or intended” by the City.35 The insurers argued that because the City had early warnings of the groundwater contamination before they obtained the policies at issue, the contamination was at least “expected” by the City, and therefore the “expected or intended” limitation precluded coverage.
The Second Circuit, applying New York law, held that the limitation did not apply. The court explained that New York courts interpret the limitation narrowly, and that “to do otherwise, and to exclude all losses or damages which might in some way have been expected by the insured, could expand the field of exclusion until virtually no recovery could be had on insurance. This is so since it is mishaps that are ‘expected’ – taken in its broadest sense – that are insured against”.36 Instead, the limitation applies only if “the insured intended damages,” or if the insured “knew that the damages would flow directly and immediately from its intentional act”.37 In those circumstances, “coverage is precluded because the damages are not ‘accidental’”.38 In the City’s case, the court held that the limitation did not apply. Although there was some evidence that the City had warnings of environmental contamination, there was insufficient evidence that the City intended the environmental damage or knew that the damage would flow directly and immediately from its intentional acts.39
A number of other cases have reached the same conclusion reached in Glidden and Johnstown and have held that the relevant inquiry is whether the damage or injury was intended by the insured.40 Given the substantial case law on this issue, the expected or intended exclusion should only preclude coverage if the policyholder actually intended the harm caused by the public nuisance. This is a high standard that rarely, if ever, will be satisfied.
If past is prologue, virtually no company is immune from being targeted in a public nuisance suit. Corporate policyholders assessing their risks and potential exposure for public nuisance claims should review their entire insurance portfolio, both past and present, to evaluate the coverage available for indemnity and defense costs. As with other potentially large-scale claims, such as asbestos and environmental contamination, the insurance industry likely will assert a host of coverage defenses to avoid or limit their coverage obligations. The defenses discussed above already have been asserted in some public nuisance-related coverage suits, and it is likely that insurers will continue to press those and other defenses in the future. However, there is a substantial body of case law developed in the battles over asbestos and environmental coverage that rejects those defenses. It may take a fight, but policyholders are likely to come out on top in this battle.
1.For a discussion of the history of public nuisance suits, see Public Nuisance: A Historical Perspective.
2. From the 1940s through 1986, CGL policies were called “comprehensive general liability” insurance policies. The name was changed in 1986 to substitute “commercial” for “comprehensive”. Both policies are commonly referred to as “CGL policies”. See 16-117 Holmes’ Appleman on Insurance 2d § 117.1(A)(1) (2008).
5. See, e.g., Castleberry v. Goldome Credit Corp., 418 F.3d 1267, 1272 (11th Cir. 2005) (“Most American courts apply a rule of construction that coverage terms are construed broadly and exclusions and limitations of coverage are construed narrowly.”) (quoting 2 Eric Mills Holmes and Mark S. Rhodes, Holmes’ Appleman on Insurance § 6.1 (2d ed. 1996)); Marquez Knolls Property Owners Ass’n, Inc. v. Exec. Risk Indem., Inc., 153 Cal. App. 4th 228, 233-34 (2007) (“While coverage clauses are construed interpreted broadly, exclusionary clauses are construed narrowly against the insurer”.) (citing State Farm Mut. Auto. Ins. Co. v. Partridge, 514 P.2d 123 (Cal. 1973)).
6. See, e.g., Technicon Elec. Corp. v. Am. Home Assurance Co., 542 N.E.2d 1048, 1050 (N.Y. 1989) (“[W]hen an exclusion clause is relied upon to deny coverage, the insurer has the burden of demonstrating that the allegations of the complaint cast that pleading solely and entirely within the policy exclusions, and further, that the allegations, in toto, are subject to no other interpretation”). (citations omitted).
8. See Glidden Co. v. Lumbermens Mut. Cas. Co., No. 409039, slip op. at 29 (Ohio Ct. Common Pleas May 8, 2002) (“If the allegations in the complaints are arguably or potentially within the coverage, even if such allegations are eventually found to be false, fraudulent or groundless or not within the indemnity obligations, the carrier is nevertheless bound to defend”.); Trizec Prop., Inc. v. Biltmore Constr. Co., 767 F.2d 810 (11th Cir. 1985) (applying Florida law) (generally, liability insurance policies provide that the insurer shall “defend any suit against [the insured] . . . even if any of the allegations in the suit are groundless, false or fraudulent”).
9.For example, in Orleans Parish School Board v. Apex Sales, Co., the Orleans Parish School Board brought public nuisance claims against a number of former manufacturers of lead paint and pigment. The suit sought to recover costs for an abatement program to remove lead from the school’s buildings. See NL Indus., Inc. v. Comm’l Union Ins. Co., 926 F. Supp. 446, 451 (D.N.J. 1996).
10. See, e.g., 20-129 Holmes’ Appleman on Insurance 2d § 129.2, at 82 n.214 (“[T]he courts have interpreted ‘damages’ in insurance policies independently of the legal and equitable distinction that has been asserted by insurers. Examples are nuisance actions, situations involving mitigation of damage to restore property, and actions that have alleged a combination of injunctive relief and damages in an otherwise covered claim or suit".) (quoting Donald S. Malecki and Arthur L. Flitner, Commercial General Liability 6 (The National Underwriter Co. 1992)).
11. See, e.g., Avondale Indus., Inc. v. Travelers Indem. Co., 887 F.2d 1200 (2d Cir. 1989) (rejecting insurer’s argument that the term “damages” only embraced “remedies at law” and did not include equitable relief); AIU Ins. Co. v. Superior Court, 799 P.2d 1253 (Cal.1990) (clean up costs for environmental contamination incurred under compulsion of an injunction can be covered by liability policy, because they are the functional equivalent of reimbursing publicly incurred costs, and an insured would not expect coverage to depend on the prosecuting agency’s fortuitous choice of remedies); Watts Indus., Inc. v. Zurich Am. Ins. Co., 121 Cal. App. 4th 1029 (2004) (term “damages” need not be traditional legal damages, but can include injunctive relief and government response costs); Aerojet-General Corp. v. Transport Indem. Co., 17 Cal. 4th 38 (1997) (term “damages” is not confined to money that the insured must give as compensation to third parties, but includes money the insured itself might expend to comply with the equitable relief sought).
21. See id. at 456-57. See also Glidden Co. v. Lumbermens Mut. Cas. Co., No. 409039, slip op. at 38 (Ohio Ct. Common Pleas May 8, 2002) (insurers were obligated to defend lead pigment-related public nuisance suits “seek[ing] damages for expenses of education, detection, preventative screening (medical monitoring) and abatement to cure a public health problem” because such suits seek to “remediate alleged hazards in buildings which have suffered property damage”).
26. See, e.g., W.R. Grace & Co. v. Cont. Cas. Co., 896 F.2d 865 (5th Cir. 1990) (holding that property damage claims based on the presence of asbestos-containing building products triggered all insurance policies on the risk from installation through removal of the building products containing asbestos); Lac d’Amiante du Quebec, Ltee. v. Am. Home Assurance Co., 613 F. Supp. 1549 (D.N.J. 1985) (holding under New Jersey law that the progressive nature of asbestos-related property damage triggers every policy on the risk from installation to removal).
27. This language is generally found in the CGL policies’ definition of “occurrence”. For example, the 1973 standard-form CGL policies afford coverage for damages caused by an “occurrence,” which is defined as “an accident, including continuous or repeated exposure to conditions, which results, during the policy period, in bodily injury or property damage neither expected nor intended from the standpoint of the insured”.
32. See generally 7A Couch on Insurance 3d § 103:25 (Expected or Intended Clause); Annotation, Construction and Application of Provision of Liability Insurance Policy Expressly Excluding Injuries Intended or Expected by Insured, 31 A.L.R. 4th 957 (1984); see also Physicians Ins. Co. of Ohio v. Swanson, 569 N.E.2d 906, 909 (Ohio 1991) (recognizing and following the “majority rule” that “it is the resultant injury which must be intended for the exclusion to apply to deny coverage”) (emphasis in original).
40. See, e.g., Physicians Ins. Co. of Ohio v. Swanson, 569 N.E.2d 906, 909 (Ohio 1991) (recognizing and following the “majority rule” that “it is the resultant injury which must be intended for the exclusion to apply to deny coverage”) (emphasis in original); Continental Ins. Co. v. Colangione, 484 N.Y.S.2d 929, 930-31 (N.Y. App. 1985) (to deny coverage “the fact finder must find that the insured intended to cause damage”); Colonial Penn Ins. Co. v. Hart, 291 S.E.2d 410, 412-13 (Ga. App. 1982) (“[t]he only issue . . . was whether the [bodily injury] was ‘either expected or intended from the standpoint of [the insured]’”) (quoting Transamerica Ins. Co. v. Thrift-Mart, 285 S.E.2d 566. (Ga. App. 1981)) (emphasis in original); Farmers Ins. Group v. Sessions, 607 P.2d 422, 426 (Idaho 1980) (holding that for an exclusion for intentional injuries to apply, the insurance company must demonstrate that the insured acted “for the purpose of causing injury in the person or property in which it resulted”); McGroarty v. Great Am. Ins. Co., 329 N.E.2d 172 (N.Y. 1975) (recovery will be barred only if the insured intended the damages).